A mid-sized European industrial group negotiates a joint venture with a regional infrastructure partner. Both sides have signed a term sheet. The combined entity is structured to hold operating licences in two jurisdictions, and the transaction is positioned to close within a defined timeframe. Then the acquiring group's compliance function raises a flag: one of the infrastructure partner's minority shareholders appears on the EU's consolidated sanctions list. The deal does not stall because the counterparty itself is designated. It stalls because nobody can say with confidence whether that minority holding is sufficient to render the joint-venture vehicle itself blocked – and whether EU persons within the group can lawfully proceed to complete.
As of January 2026, the EU ownership and control test under the relevant Council regulations treats an entity as subject to asset-freeze obligations where a listed person holds or controls it, either alone or in combination with others – but the threshold and the control analysis differ materially from the mechanical 50 percent or more aggregate rule applied by OFAC. That divergence is the core problem in joint-venture sanctions structuring under the EU regime.
This case comment sets out the situation that reached us, the legal questions it raised, the analysis we applied across the EU and comparator regimes, the route the client took, and the lessons that apply to similar businesses building or restructuring joint ventures with cross-border ownership chains.
The situation: what the joint-venture structure looked like
The client was an EU-headquartered industrial group with subsidiaries in several member states. Its proposed joint-venture partner was a privately held entity registered outside the EU. That entity's ultimate ownership was distributed among several investors, one of whom – holding a minority stake below thirty percent – appeared on the EU's consolidated list of persons subject to asset-freeze and dealing prohibitions under the applicable thematic sanctions regulations.
The joint-venture vehicle was to be incorporated in a third-country jurisdiction. EU persons within the client group would hold a majority of the vehicle's equity. The minority position was to be held by the infrastructure partner, whose own ownership chain included the listed individual. The term sheet was already signed. The client had received preliminary financing indications from a European bank. And no formal sanctions clearance had been sought before the deal reached an advanced stage.
The referral came to Calder & Vance approximately ten days before the scheduled signing of the subscription agreement. That compressed timeframe concentrated the legal questions significantly. Was the infrastructure partner itself caught by the EU asset-freeze through the listed minority shareholder? Could the client's EU persons proceed to complete the joint-venture subscription? Did the financing bank face separate exposure? And what did the position look like under OFSI and OFAC – both of which could, on the transaction's facts, be relevant to parts of the group?
The legal question: does EU ownership-and-control analysis catch the partner?
The EU ownership and control test – under which an entity is treated as subject to the same restrictions as a listed person if that listed person "owns or controls" it – is the central mechanism in EU sanctions structuring analysis. Unlike OFAC's rule, which sets a bright-line ownership threshold, the EU test is explicitly bifurcated: ownership and control are separate grounds, and either alone is sufficient.
On the ownership limb, EU practice and guidance look at whether a listed person holds a sufficient ownership interest to constitute control through ownership. Guidance from relevant EU institutions has indicated that ownership of more than fifty percent is generally treated as establishing this, but that is not a formal statutory threshold. Below that level, the analysis does not stop. It shifts to the control limb.
The control limb is where the EU analysis becomes materially more demanding than OFAC's mechanical rule. Control in the EU context encompasses voting rights, board appointment rights, veto rights over key decisions, and contractual arrangements that allow a listed person effectively to direct an entity's activities. In our cross-border practice, we see clients routinely underestimate how broadly EU institutions interpret this limb. A minority shareholder holding governance rights over the joint venture's strategic decisions – even at twenty-five percent or less – can satisfy the control test if those rights allow that person to block or direct key activities.
In this matter, the listed individual held a minority ownership stake below thirty percent. But a review of the infrastructure partner's constitutional documents revealed a shareholders' agreement granting existing investors certain veto rights over major transactions, including disposals and new equity issuances. The question was not academic. It required us to assess whether those rights, in the hands of a listed person holding a minority stake, crossed the control threshold under the applicable Council regulation's guidance.
Cross-regime mapping: how OFAC and OFSI compared on the same facts
Cross-regime comparison in joint-venture sanctions structuring is not a theoretical exercise. It is operationally necessary where parts of the client group, the financing structure, or the counterparty's operations create nexus to more than one regime.
Under OFAC, the analysis would have turned on the aggregate ownership threshold. The listed individual's stake was below fifty percent, and there was no evidence of additional listed-person ownership in the infrastructure partner that, aggregated, would have crossed that line. On OFAC's mechanical test, the infrastructure partner would not, on those facts, be treated as a blocked entity. That is a meaningfully different result from the EU analysis.
Under OFSI – applying the UK test under the Sanctions and Anti-Money Laundering Act and the relevant thematic UK regulations – the position was closer to the EU approach. OFSI applies both an ownership and a control analysis. Its guidance indicates that ownership of more than fifty percent is a clear indicator, but the control limb is not limited to ownership and extends to persons who "control" the entity's affairs. The practical content of OFSI's control test, as reflected in its published guidance, overlaps substantially with the EU position on governance rights.
The financing bank had correspondent relationships in US dollars. That introduced a secondary dimension: even where the bank's exposure to the joint venture itself might be analysable under EU or UK rules, its dollar-clearing transactions engaged OFAC jurisdiction over any US-dollar leg of the financing. That is a practical example of why cross-regime analysis is not optional in a matter of this kind. A party might be clear under one regime and problematic under another, and the stricter prohibition governs the conduct of persons within that regime's reach.
The risk flags that had not been identified before we were engaged
Several risk factors in this matter had not been identified by the client's internal process before the referral.
First, the initial compliance screening had been applied to the infrastructure partner's name and registered details only – not to its ultimate beneficial owners. The listed individual's name did not appear in any direct record attached to the partner entity. It surfaced only when the ownership chain was traced to the second tier. Screening that stops at the entity level will miss exactly this pattern.
Second, the shareholders' agreement for the infrastructure partner had not been reviewed from a sanctions perspective. In our experience, governance documents are the most commonly overlooked source of control analysis inputs. Veto rights, board appointment rights, and reserved-matter consent requirements are legal mechanisms that can determine sanctions exposure independently of the ownership percentages appearing on a cap table.
Third, the client had assumed that EU sanctions rules operate in the same way as its US counsel had described OFAC's rules. The distinction between a mechanical ownership threshold and a bifurcated ownership-and-control test is not always understood at the transaction team level. That assumption, if uncorrected, would have led the client to conclude that a sub-fifty-percent stake was irrelevant to the EU analysis.
Fourth, no consideration had been given to the timeline implications of potential licensing. If completion had proceeded and the position had subsequently been found to involve a breach, the path to remediation would have been significantly more constrained than acting before completion.
The analysis and the route taken
Having mapped the ownership chain and reviewed the governance documents, we concluded that the question of whether the infrastructure partner was "controlled" by the listed individual under the EU test was genuinely contested. The veto rights were real, but they were framed as protective rights applying only to certain defined matters rather than as positive direction rights. The argument that those rights did not, in combination with a sub-thirty-percent stake, constitute control under the applicable guidance was tenable – but not certain.
We presented the client with three routes.
The first was a restructuring of the joint-venture subscription to eliminate or restructure the infrastructure partner's ownership chain before completion, removing the listed individual's indirect interest. That route was commercially difficult given the term sheet terms and the relationships involved.
The second was to seek a specific authorisation from the relevant competent authority. Under EU sanctions regulations, member-state competent authorities have the power to grant authorisations for transactions that would otherwise be prohibited, on defined grounds. The client was EU-based; the relevant competent authority was therefore identifiable. We advised that an authorisation application would need to address both the prohibition question and the grounds for authorisation under the applicable regulation, and that the outcome was not guaranteed.
The third route was to proceed on the basis of a documented legal analysis concluding that the control test was not met – with enhanced transaction monitoring, clear contractual protections removing the listed individual's governance rights from any influence over the joint-venture vehicle, and an internal escalation protocol for any change in the ownership or governance position. That approach required the client to accept residual legal uncertainty and to put in place controls that would reduce the risk of an adverse finding.
In a recent matter of this kind, the client selected a combination of the second and third approaches: the joint-venture's constitutional documents were amended to eliminate the listed individual's indirect governance rights in respect of the vehicle itself, and a formal legal analysis was prepared and retained. Competent-authority guidance was sought in parallel on a no-names basis. The matter proceeded on that basis. We are not able to describe the outcome with reference to any guarantee of regulatory acceptance.
What does this mean for businesses structuring joint ventures with cross-border ownership?
Joint-venture sanctions structuring under the EU regime requires analysis that is qualitatively different from applying a mechanical ownership threshold. The control limb of the EU test introduces a layer of review that goes beyond the cap table.
Businesses that structure joint ventures with counterparties whose ownership chains are not fully mapped before signing carry a risk that is difficult to remedy at completion. Pre-signing diligence on the second and third tiers of the counterparty's ownership structure, combined with a review of that counterparty's governance documents, is the baseline for managing this risk. Those two steps – ownership chain mapping and constitutional-document review – are the minimum required before the EU analysis can be reliably conducted.
The cross-regime dimension is equally important. A joint venture that involves EU persons, UK-regulated financing, and dollar-denominated settlement can engage three separate sanctions regimes simultaneously. The answer under one regime does not determine the answer under another. In our cross-border practice, we regularly advise transaction teams that the most analytically important result of a cross-regime review is not the most permissive analysis but the most restrictive one, because the stricter prohibition governs the conduct of persons within that regime's reach.
A common misconception is that an EU sanctions issue relating to a minority shareholder in a counterparty is a due-diligence formality rather than a live legal question. That is the myth this matter illustrates directly. The EU ownership-and-control analysis is substantive. A sub-threshold ownership stake that is accompanied by governance rights capable of satisfying the control limb is not a formality. It is a potential prohibition that requires legal analysis, not a tick-box check.
The earlier that analysis is conducted in the transaction timeline, the more options remain available. When a compliance issue surfaces ten days before signing, the commercially viable options are narrower than when it surfaces during initial due diligence. We have acted for clients in both positions. The cost – in time, in legal fees, and in negotiating capital – is materially lower when the review is conducted at the outset.
Related practices
- Correspondent banking and de-risking under OFAC – sanctions exposure analysis for dollar-clearing relationships and cross-border financing structures.
- M&A sanctions diligence – EU matter – a parallel case comment on ownership-chain and control analysis in an EU M&A context.
- M&A sanctions diligence – OFSI matter – the UK perspective on sanctions risk in acquisition structures with complex ownership.